How Hindustan Unilever is recasting its ayurvedic and herbal FMCG business in a fast-growing sector in which Ramdev’s Patanjali is setting the pace.

Indian head honchos of the foods and personal care multinational Unilever love talking about their salad days at the Indian operation. Be it Harish Manwani, the current chairman of Hindustan Unilever Ltd (HUL) or R Gopalakrishnan, the company’s former vicechairman (now with Tata Sons), the days spent roaming the countryside, moving from shop to shop, seeking feedback on products, still bring a sparkle in their eyes. Gopalakrishnan even says that he learnt the best lessons on life and business during these travels. Unsurprisingly, it has been routine for new recruits at the century-old company to pack a suitcase and hit the country roads early in their careers.

Gopalakrishnan had moved to a sales role after spending four years as a computer analyst for Levers, as the Indian subsidiary was commonly known then. While he values that decision to change tracks back in the late ’70s, the desktop computer (along with the smartphone) may have a key role to play in a fresh foray. HUL’s latest launch — or rather relaunch — Ayush, a set of eight ayurvedic products, hinges on ecommerce; these products will be only sold in ecommerce marketplaces. There aren’t any foot soldiers gathering feedback from kirana shops in villages and towns for this range either. Feedback is generated online, and customers often leave detailed comments that are gleaned by analysts. HUL is investing in owning online search keywords around ayurveda, testing the market, advertising online and embracing change.

With Ayush, HUL is hitting back at the fastest growing FMCG upstart in India, Baba Ramdev’s Patanjali Ayurved. While HUL is a giant, expected to touch Rs 35,000 crore in total revenues this fiscal year, the fast-growing Patanjali is eyeing Rs 5,000 crore with a stupendous 150 per cent growth expected this year. Patanjali launched its atta noodles early this week and has a full range of food, grocery, personal care and soap products plus some more lined up for launch. With Ayush, an ayurvedic personal care range, HUL can grab some revenues in the core market of Patanjali.

Trees and Greenshoots

There is some history, though. Ayush is a decade old brand, once almost dead, that is being revamped. It had been HUL’s vehicle in the Hindustan Lever Network (2003), the MNC’s answer to Amway, along with Aviance and Lever Home. Ayush Therapy Centres, a retail spa-cum-treatment offering, were also launched in 2004 across the country. The network never really took off and has since largely been neglected. HUL was even toying with the idea of killing the Ayush brand. But it had another destiny.

Soon after the launch of Ayush, the ayurvedic products market saw the entry of Patanjali founded by Ramdev’s associate Acharya Balkrishna. The ‘baba’ not only became a television celebrity teaching yoga (Patanjali owns 90 per cent in Aastha Channel), but in 2006 it launched ayurvedic medicines and ayurvedic over-the-counter (OTC) products and other consumer foods like ghee, honey and atta, notching up sales of Rs 2,000 crore by 2015. Ramdev never hid his contempt for multinationals and vows to kill their market.

His unconventional marketing and strong follower base coupled with aggressive pricing helped him overtake established players in ayurvedic FMCG like Emami and Himalaya. Using the Patanjali brand’s rub-off, he entered other foods and personal care categories. Abneesh Roy, an equity analyst at broking house Edelweiss, who visited the Patanjali factories in Haridwar in September, says: “Imagine Patanjali at Rs 5,000 crore in 10 years and HUL with its decades of work in India at Rs 35,000 crore and you realise how fast Patanjali has grown. It is a real game-changer.”

Ramdev is also perceived to be close to the current dispensation at the Centre. But the Modi government may have also, unwittingly, helped HUL by creating a new ministry to promote ayurveda — and naming it Ayush! Samir Singh, HUL’s executive director for personal care who handles Ayush, does not concede that the government’s move may have played a role in keeping Ayush alive, and prefers to see it as a happy coincidence. Nor will Singh agree that Patanjali has helped grow the market. Instead, he points to the global trend of the use of herbal and natural products as a trigger for HUL to breathe new life into the Ayush range. “The global herbal market is growing fast, about 15-20 percentage points faster than the rest, and the premium segment is growing even faster,” he says, justifying HUL’s premium positioning of its products.

The Herbal Way

According to a February 2015 forecast by Global Industry Analysts, a San Jose, USbased market research firm, the market for herbal supplements and remedies is expected to be worth $107 billion by 2017 and then touch $115 billion in 2020. The report notes that while Europe is the largest market, Asia-Pacific is the fastest growing region and “backyard herbalism” in countries like India and China, referring to a belief in traditional and home herbal remedies, provides the ideal ground for growth.

Indian industry too now seems to have aligned itself to the prospects. According to one expert, the industry had started off on the wrong foot. DB Anantha Narayana, currently the managing trustee of the Delhi Pharmaceutical Trust, had helmed the development of Ayush at HUL when it was started and retired from HUL in 2010. Before HUL, he had worked with Dabur, a pioneer of sorts in ayurveda.

Anantha Narayana calls out a misreading of the science of ayurveda by the Indian industry by seeing it as a disease treatment system, whereas it is actually a wellness science — a study on how to keep people healthy, with medicinal supplements if illness strikes. Says Anantha Narayana: “So many companies like Dabur or Himalaya produced ayurvedic medicines (ethical products that should be prescribed by doctors) and hoped that, apart from ayurvedic doctors, allopathic doctors would also prescribe them. That did not happen as there was never enough data to satisfy allopathic practitioners.” He explains that after slamming into this growth barrier, companies started focussing on ayurvedic and herbal FMCG products (over-the-counter products) with great results. “Look at Himalaya — their 25-year-old ayurvedic business at Rs 600 crore has now been overtaken by their five-year old ayurvedic FMCG business touching Rs 900 crore already.”

Dabur too has made the shift. Narayana was at Dabur when it had launched its Vatika Hair Oil and he says while it is ayurvedic, it is also cosmetic. Patanjali too, seems to be on the same quest. While its website lists about 10 ayurvedic medicines and an equal number of treatment packages, it lists hundreds of ayurvedic FMCG products and grocery foods and other items, all riding on the goodwill of the Patanjali brand.

Sugary and Spicy

This has left some players in the market quite perplexed. Harsh Agarwal, director for Emami, which also owns the Zandu brand, asks: “Now what has ayurveda got to do with noodles or atta? They are doing this for the positive health rub-off that the Patanjali brand has.” Agarwal however feels more players will help expand the herbal/ayurvedic market and welcomes HUL’s entry.

His views are echoed by Lalit Malik, chief financial officer of Dabur. “The penetration level of ayurvedic products is very low today and we feel that the entry of new players will help expand this market. New players in this category will serve as a facilitator in terms of growth and not as a threat,” Malik said.

The Indian herbal medicines and personal care products market is so fragmented that there is no clear assessment of how big it is. There are thousands of small companies and local units that produce and sell ayurvedic medicines and OTC offerings. One industry estimate suggests that the natural/herbal personal care market alone in India is worth around Rs 9,000 crore, 20-25 per cent of which are ayurvedic products.

This estimate excludes the market for ayurvedic medicines and OTC ingestibles (including toothpastes) like Chyawanprash.

The large organised players are Dabur, Emami and Himalaya, which produce both medicines and OTC products. There are premium players like Forest Essentials and now HUL. And then there is the price warrior, Patanjali, most of whose products are 20-30 per cent cheaper than the rest in the market (see Patanjali, the Price Warrior). HUL products are priced at between 2 and 2.5 times the average market price.

Both Emami and Dabur stress that they are ready to face challenges at both ends, be it from Patanjali or from HUL. Agarwal of Emami says that the company has big plans around the Zandu brand and there are a host of new products that will be launched in 2016 along with a brand revamp. “Major changes will happen,” he promises and adds: “I see opportunities everywhere. It depends on the products and the companies. There is enough space for everyone.”

Malik of Dabur insists that Dabur still leads the category. “Dabur India also has a strong research wing that follows a ‘bush-to-brand’ approach. We have our in-house nursery, which grows several rare herbs. Dabur has been investing in researching and developing high quality products to retain its leadership position in the market,” he says.

Battle-ready Baba

While others welcome competition, it seems Ramdev relishes the prospect of a battle with HUL. Not just HUL, he is ready to take on Johnson & Johnson, GlaxoSmithKline and Procter & Gamble too. However, in terms of breadth and scale of operations, Patanjali has some way to go. Today, only 21 per cent of Patanjali’s revenues are from pure ayurvedic products, while another 39 per cent comes from herbal/ayurvedic cosmetics. The remaining 40 per cent comes from foods. At HUL soaps and detergents account for about 48 per cent of the revenues with personal care bringing in around 29 per cent and packaged foods and beverages around 17 per cent.

Ramdev tells ET Magazine that Patanjali’s ayuvedic products are “thousand times better” than any global brand. “We have been in this (ayurvedic) sector and they are now entering it. So they are following us,” he says.

HUL’s Samir Singh says that all the HUL ayurvedic products are developed and manufactured in collaboration with the Coimbatore-based Arya Vaidya Pharmacy, tested extensively and ayurvedic processes from ancient texts are strictly followed. “To make our Ayush hair oil for instance, we follow a process of boiling ingredients in 10 liters of milk till it is reduced to 1.4 litres over more than two days. The entire process of making the oil takes 10 days,” says Singh.Patanjali, on the other hand, has invested in the most modern machines, says Roy of Edelweiss, who has seen it first hand. “It also helps that they source locally,” he adds. Patanjali has now tied up with Kishore Biyani’s Big Bazaar. For his part, Biyani sees a method in the partnership. “Indians like Indian companies and Indian products.”

Patanjali’s plan for fresh launches would worry any competition. In an interview with ET Magazine Ramdev spoke about Powervita, a nutritional supplement for children, a herbal baby care cosmetics range and a premium fairness cream.

Patanjali has its challenges. For one, too much rides on Ramdev and his personal standing in India and globally (he claims a following of 20 crore). A political association with any political party is a double-edged sword as a change in political dispensation means bad news. For another, Patanjali lacks an army of Bschool educated managers and marketers, a la HUL (although you could argue that may be an advantage). A symptom of that gap was visible earlier this week when, after the launch of the atta noodle, the Food Safety and Standards Authority of India said that Patanjali did not apply for approvals. Ramdev reckons all approvals are in place and it may be a conspiracy to malign him. If he is serious, and it seems he is, it’s probably time for Ramdev to get some management heft in his ranks.

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